How to Help State’s Small and Midsized Manufacturers Grow

Manufacturers are key to Connecticut’s future because they are powerful sources of economic activity and innovation. It’s important for state tax policy to encourage those activities–innovation and growth–to take place in Connecticut.

That’s why CBIA and other manufacturing groups have been urging lawmakers to extend the research and development (R&D) and apprenticeship tax credits to pass-through entities effective Jan. 1, 2015.

Many smaller businesses are structured as S Corporations, Limited Liability Corporations, and Limited Liability Partnerships, collectively known as pass-through entities. These entities pay their business taxes through the personal income tax but are currently unable to use the apprenticeship tax credits that larger, C corporations, can access.

Extending the apprenticeship tax credit to pass-through entities as soon as possible is extremely important because Connecticut manufacturers are facing a serious workforce shortage.

A recent survey of manufacturers identified at least 1,000 existing vacancies in key manufacturing positions. That same survey also showed that by the end of 2015 manufacturers expect to hire over 1,400 people in those same key positions. Yet according the state, there are only 85 active apprenticeship sponsors in manufacturing sector and 150 apprentices in total.

It’s extremely expensive to have an apprenticeship program and takes roughly eight years before an employer experiences a return on their investment. That’s why extending the apprenticeship tax credit to pass-through entities is so important. While this proposal is modest (the state fiscal impact is less than $1 million), it is very important and is desperately needed.

Win-Win

Expanding access to the apprenticeship tax credit would be a win-win situation: Not only would it help open the talent pipeline for manufacturers, it also would help many people looking for a way to increase their skills and enter the workforce.

Innovation

Research and development is crucial to both the short-term vitality and the long-term health of any business. The economic wellbeing of the state is strongly tied to innovation and sustained business growth, and extending the R&D tax credit to pass through entities will contribute to the state’s recovery.

The R&D tax credit is the state’s primary tax policy fostering innovation and driving sustainable job growth. But, the R&D process is long and costly, so R&D tax credits are critical to locating such facilities in the state.

As the personal income tax rate for investors and small employers has risen in years, so has the need for credits to encourage investment in Connecticut. At one time there was a substantial difference between the tax rate C corporations and pass-through entities paid, but that has changed. Extending the Apprenticeship and R&D tax credits to pass-through entities is both logical and necessary in order to keep the state’s small and midsize businesses so they can invest and expand in Connecticut.

For more information, contact CBIA’s Bonnie Stewart at 860.244.1925 | bonnie.stewart@cbia.com | @CBIAbonnie